Department of Justice enforcement officials frequently speak about the Foreign Corrupt Practices Act. However, most of these events are private in which the public has to fork over a couple thousand of dollars to a private company who markets the public officials to drive attendance at the event (see here for the prior post). The end result is that there is seldom the opportunity to analyze FCPA statements by DOJ officials.
That is what makes video clips (here and here) of Jeffrey Knox (DOJ Fraud Section Chief) at a recent CFO Network event sponsored by the Wall Street Journal valuable.
In the video clips, Knox follows the DOJ’s same tired script when it comes to voluntary disclosure and other issues when it comes to the DOJ’s FCPA enforcement program.
Moreover, as highlighted below, Knox’s statements on voluntary disclosure are contradicted by previous statements by former Assistant Attorney General Lanny Breuer – as well as numerous statements by former DOJ FCPA enforcement officials.
Most problematic, Knox’s statements on voluntary disclosure and the source of DOJ corporate FCPA enforcement actions are contradicted by the facts.
In the first video clip, Dennis Berman (Business Editor, WSJ) returns to a topic previously explored by Forbes in 2010 (see here for the “Bribery Racket”) as well as the WSJ in 2012 (see here for “FCPA Inc. and the Business of Bribery”) and calls the relationship between FCPA law firms, companies, and the DOJ a “protection racket all around” and that the “three party relationship might bring some good, but in a way it doesn’t feel like justice, it feels like a business arrangement.”
Knox of course disagreed and stated that it is “just not true” that the DOJ outsources its FCPA investigations to law firms. Knox stated: “we don’t outsource, internal investigations are a tool, an important tool in many cases for us that is used throughout law enforcement, there is nothing exceptional about the FCPA, but we are not relying on it [internal investigations].”
Knox’s statement that the DOJ does not rely on law firm investigations in bringing FCPA enforcement action is contradicted by previous statements by former Assistant Attorney General Lanny Breuer. While at the DOJ, Breuer stated that the DOJ “absolutely need[s] companies through their firms to provide us with their investigations.” (See here).
Moreover, Knox’s statement is contradicted by the facts.
As highlighted here, in 2013, 57% of corporate FCPA enforcement actions were the direct result of voluntary disclosures. As highlighted here, in 2012, 56% of corporate FCPA enforcement actions were the direct result of voluntary disclosures. As highlighted here, in 2011, 73% of corporate FCPA enforcement actions were the direct result of voluntary disclosures.
As to voluntary disclosures, Knox stated that the “earlier that the company engages with us the better position it is going to be in” regarding various aspects of its FCPA scrutiny.
For obvious reasons, the DOJ favors voluntary disclosure as it makes its job easier and is the fuel that feeds its FCPA enforcement program. However, in contrast to Knox’s statement about voluntary disclosure, several former DOJ enforcement officials have questioned the need for FCPA voluntary disclosures in many instances.
Indeed, the former Chief of the DOJ’s Fraud Section stated (obviously after he left that position) as follows.
“It often will not be in a company’s best interest to disclose if, for example, the allegations prove not to be credible or if it is unclear whether the conduct even amounts to a violation of law. Under those circumstances, a disclosure could unnecessarily embroil the company in a lengthy and costly government investigation and result in other repercussions such as triggering civil litigation and harm to a company’s reputation that could otherwise be avoided. It’s a challenging calculus. […] However, the fact that a company doesn’t disclose a problem that ultimately comes to DOJ’s attention is not necessarily going to damage the company’s credibility with DOJ. Regulators recognize that not every allegation should be of interest to them – and, frankly, having counsel that knows when they’ll be interested and when they won’t is really important.”
Similarly, as noted by a former SEC enforcement attorney and a former DOJ enforcement attorney:
“Not all potential [FCPA] problems, however, are appropriate for disclosure. After investigation, allegations of misconduct may not result in a determination that illicit activity has occurred. […] Prematurely attracting the government’s attention may, as a practical matter, shift the burden to the company to prove the absence of a corruption problem. Enforcement officials may feel the need as a matter of basic human nature to seek some type of resolution to a case where they have invested significant time and effort. Companies need to weigh the potential benefits of cooperation against the significant costs of initiating a potentially unwarranted government investigation.”
As evident from the above video clips, Alexandra Wrage (President of Trace International) joined Knox in the discussion of FCPA issues. Wrage rightly shot back at Knox’s voluntary disclosure comments and noted that early voluntary disclosure “is terrifying to companies before they have their arms around the scope of the problem.” Wrage noted that the “idea that a company is going to go in first without knowing the full extent of the problem, I don’t think any general counsel is going to sign off on this.”
In the second video clip, the WSJ’s Berman asks Knox, using various examples of FCPA scrutiny that have resulted in tens or hundreds of millions of dollars in pre-enforcement action professional fees and expenses, “is the cure worst than the disease.”
To his credit, Knox rightly noted that “in some instances companies are spending too much money on investigations.” His statement is similar to the one Chuck Duross (then the DOJ FCPA’s Unit Chief) made at an ABA conference in September 2013. As highlighted here, Duross suggested that often company lawyers are seeking to over do it through a global search of operations for FCPA issues. He discussed a case in which a company and its professional advisors came to a meeting with a global search plan and he said “no, no, no, that is not what I want.” He indicated that the lawyers and other professional advisors in the room “looked unhappy,” but that the general counsel of the company was happy. (For more on this dynamic, see this prior post).
For her part, Wrage agreed with Knox that there is “lots of scare tactics by law firms” when it comes to the FCPA.
One final comment.
During the discussion, Knox stated that there is “massive corruption going on around the world.” Similar to the issues discussed in this recent post, this statement alone ought to cause the enforcement agencies to pause and reflect whether – 37 years after passage of the FCPA – enforcement agency policies and positions (which are frequently modeled by other nations) are most effective in accomplishing the objectives of the FCPA.
